High-speed rail bond financing is off track - Vote no on Prop. 1A

James R. Mills and Richard F. Tolmach

Published 4:00 am, Wednesday, October 8, 2008

We all believe in attractive alternatives to driving, especially sleek electric trains designed in Europe, but the promises in Proposition 1A on the Nov. 4 ballot are simply too good to be true. Voters are being asked to approve nearly $10 billion in bonds (costing taxpayers about $20 billion when debt service is included) for a San Francisco to Anaheim project. The total cost is probably five to 10 times that amount, and the financial structure of the project remains a mystery even to Sacramento insiders.

The California Rail Foundation has been a vocal advocate for high-speed rail, but this project frankly doesn't pass the smell test. In this year of global market meltdowns, voters should be cautious about a financially-leveraged proposal like Prop. 1A. The numbers don't add up and the High-speed Rail Authority refuses to explain how the system it proposes can be financed.

The California Legislature, wanting answers to its financial questions, demanded that the rail authority present a business plan by Sept. 1, and wrote that mandate into the initiative. At its Oct. 1 meeting, rail authority staff complained about legislative pressure and indicated it would not comply. Lehman Bros., the rail authority's financial adviser, is apparently out of business and unavailable to write the business plan. How can taxpayers trust the rail authority with $20 billion, given this record?

To promote the project, the rail authority made wild claims about ridership, energy and pollution benefits. It based its claims on a prediction that 117 million passengers will use this service annually, dwarfing the 29 million using Amtrak nationwide today. Amtrak's high-speed train, Acela, carries only 3 million annually.

No European high-speed train comes close to the rail authority's claimed performance. France's best route, the TGV-Southeast had 17.5 million passengers in its 10th year of operation, and 12 million of those passengers used trains before high-speed service started. How could California trains instantly outperform European trains that link larger populations and benefit from superb transit connections?

The rail authority claims that the project will have no operating deficit, but the legislative analyst says the operating cost would be about $1 billion annually, and suggests a portion of this cost would have to be subsidized. Where would the money for this subsidy come from? The danger is that it will come from draining state public transit funds that support existing bus and train networks.

Millions of Californians, ourselves included, sincerely want high-speed rail. The problem is that a vote for Prop. 1A only guarantees billions of dollars will be spent. High-speed trains may never run, as the revenue bond is only a small fraction of the total amount required. The rail authority's idea is apparently to start a very big hole in the ground, then come back and ask for $30 billion to $70 billion more from taxpayers. Federal funding, following the Wall Street bailout, is as unlikely as private investment.

Rather than digging California deeper into high-interest bond debt, we favor improving rail using the federal railroad infrastructure loan fund. It has $34 billion available, but does require project advocates to demonstrate that they can repay the loans from revenues. Prop. 1A has no such guarantees.

Energy costs are causing us all to think more locally, and that is good. Few Californians have trouble getting from San Francisco to Los Angeles. Many have trouble getting from home to work. First priority for public spending should be to improve existing rail routes and highways, and help ease the chronic congestion that plagues commuters each day.

Let's not get taken for a high-speed ride by the California High-Speed Rail Authority and its slick promoters. In today's tough economic times, the last thing we need is more debt for yet another badly conceived project. Join many rail supporters and vote no on Prop. 1A.

Election 2008

To read The Chronicle's endorsements on Prop. 1A and others on the Nov. 4 general election ballot, go to sfgate.com/campaign2008/

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